1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to _______
Commission file number 000-21813
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Texas Equipment Corporation
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(Exact name of registrant as specified in its charter)
Nevada 62-1459870
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
1305 Hobbs Hwy, Seminole, Texas 79360
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (915) 758-3643
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
- ------------------- -----------------------------------------
None None
Securities registered under Section 12(g) of the Exchange Act:
Title of each class
-------------------
Common Stock, $.001 par value
Indicate by check mark whether registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the past
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes X No
--- ---
The number of shares outstanding of the registrant's Common Stock, as of
May 10, 2000 was 3,607,311.
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INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1. Condensed Financial Statements:
Consolidated Balance Sheets at March 31, 2000 and December 31, 1999 .............................................. 4
Consolidated Statements of Operations for the Three Months Ended March 31, 2000 and 1999 ......................... 6
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2000 and 1999 ......................... 7
Item 2. Management's Discussion and Analysis of Financial Conditions and Results of Operations ......................12
Item 3. Quantitative and Qualitative Disclosures about Market Risk ..................................................16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings............................................................................................17
Item 6. Exhibits and Reports on Form 8-K ............................................................................17
Signatures ..........................................................................................................18
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CAUTIONARY STATEMENT REGARDING
FUTURE RESULTS AND FORWARD-LOOKING STATEMENTS
The future results of the Company, including results reflected in any
forward-looking statement made by or on behalf of the Company, will be impacted
by a number of important factors. The factors identified below in the section
entitled "Part 1. Item 2. - Management's Discussion and Analysis of Financial
Condition and Results of Operations - Safe Harbor Statement" are important
factors (but not necessarily all important factors) that could cause the
Company's actual future results to differ materially from those expressed in any
forward-looking statement made by or on behalf of the Company. Words such as
"may," "will," "expect," "believe," "anticipate," "estimate," or "continue" or
comparable terminology is intended to identify forward-looking statements.
Forward-looking statements, by their nature, involve substantial risks or
uncertainties.
NOTE CONCERNING REVERSE STOCK SPLIT
The historical share and per share data included in this Report on Form 10-Q has
been adjusted to give effect to a 7-for-1 reverse stock split effective
September 7, 1999.
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PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS.
TEXAS EQUIPMENT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
MARCH 31, DECEMBER 31,
2000 1999
------------- -------------
CURRENT ASSETS
Cash and cash equivalents $ 171,400 $ 307,509
Accounts receivable (less allowance for
doubtful accounts of $109,564) 396,293 561,958
Other receivables 1,571,347 1,127,502
Inventories 25,547,128 27,247,079
------------- -------------
Total current assets 27,686,168 29,244,048
PROPERTY AND EQUIPMENT, NET 5,508,016 5,481,180
FINANCE RECEIVABLES (less allowance for doubtful
accounts of $200,000) 601,659 588,564
RECEIVABLES FROM OFFICER 136,968 134,800
GOODWILL, net of accumulated amortization of
$95,349 in 2000 and $92,170 in 1999 95,349 98,528
OTHER ASSETS 347,901 318,972
------------- -------------
$ 34,376,061 $ 35,866,092
============= =============
4
See Notes to Condensed Financial Statements
5
TEXAS EQUIPMENT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
MARCH 31, DECEMBER 31,
2000 1999
-------------- --------------
CURRENT LIABILITIES
Floor plan payables $ 15,674,894 $ 17,625,613
Notes payable 2,281,063 1,749,811
Accounts payable 1,260,339 1,215,398
Accrued liabilities 405,252
368,763
Current maturities of
long-term debt 414,019 397,639
-------------- --------------
TOTAL CURRENT LIABILITIES 20,035,567 21,357,224
LONG-TERM DEBT, net of
current maturities 7,276,291 7,353,825
DEFERRED TAX LIABILITY 233,074
233,074
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $.001 par value authorized
50,000,000; issued and outstanding
3,607,311 in 2000 and 1999 3,607 3,607
Paid in capital 3,274,933 3,298,647
Retained earnings 3,552,589 3,619,715
-------------- --------------
TOTAL STOCKHOLDERS' EQUITY 6,831,129 6,921,969
-------------- --------------
$ 34,376,061 $ 35,866,092
============== ==============
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See Notes to Condensed Financial Statements
6
TEXAS EQUIPMENT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
--------------------------------
2000 1999
-------------- --------------
REVENUES $ 17,615,551 $ 17,112,323
COST OF SALES 15,156,189 14,656,524
-------------- --------------
GROSS PROFIT 2,459,362 2,455,799
SELLING,GENERAL AND
ADMINISTRATIVE EXPENSES 2,426,945 2,163,613
-------------- --------------
INCOME FROM OPERATIONS 32,417 292,186
OTHER INCOME (EXPENSE)
Interest expense (254,980) (179,150)
Interest income 59,641 82,179
Non-cash guarantee fee (20,000) (16,756)
Other income 15,013 6,256
-------------- --------------
(LOSS) INCOME BEFORE TAXES (167,909) 184,715
INCOME TAX EXPENSE (57,070) 65,105
-------------- --------------
NET (LOSS) INCOME $ (110,839) $ 119,610
============== ==============
NET (LOSS) INCOME PER SHARE
Basic $ (0.03) $ 0.03
Diluted $ (0.03) $ 0.03
NUMBER OF SHARES USED IN COMPUTATION
Basic 3,607,311 3,512,274
Diluted 3,607,311 3,543,494
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See Notes to Condensed Financial Statements
7
TEXAS EQUIPMENT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
--------------------------------
2000 1999
-------------- --------------
CASH FLOWS (USED IN) PROVIDED BY OPERATING ACTIVITIES
Net (loss) income $ (110,839) $ 119,610
Adjustment to reconcile net (loss) income to net cash
(used in) operating activities:
Amortization & depreciation 137,860 137,260
Guarantee fee - valuation of stock options issued 20,000 16,756
Interest on convertible note 14,393 17,824
Changes in operating assets and liabilities:
Accounts and other receivable (278,180) (258,701)
Inventories 1,699,951 3,253,056
Floor plan payable (1,950,719) (3,655,616)
Accounts payable 44,941 (28,172)
Accrued liabilities 36,489 (40,560)
Finance receivable (13,095) 50,095
Income tax liability -- 70,223
Other assets (28,929) (34,999)
-------------- --------------
NET CASH (USED IN) OPERATING ACTIVITIES (428,128) (353,224)
-------------- --------------
CASH FLOWS (USED IN) INVESTING ACTIVITIES
Purchases of land, buildings and equipment (161,517) (105,675)
Stockholder's receivable (2,168) (779)
-------------- --------------
NET CASH (USED IN) INVESTING ACTIVITIES (163,685) (106,454)
-------------- --------------
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See Notes to Condensed Financial Statements
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TEXAS EQUIPMENT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
------------------------------
2000 1999
------------- -------------
CASH FLOW PROVIDED BY (USED IN) FINANCING
ACTIVITIES
Proceeds from line of credit $ 531,252 $ 241,423
Proceeds from long-term debt 530,031 790,427
Repayments of long-term debt (605,579) (959,154)
------------- -------------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 455,704 72,696
------------- -------------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS (136,109) (386,982)
CASH AND CASH EQUIVALENTS AT THE
BEGINNING OF THE PERIOD 307,509 494,132
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CASH AND CASH EQUIVALENTS AT THE END OF
THE PERIOD $ 171,400 $ 107,150
============= =============
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash paid during the period for:
Interest expense $ 240,586 $ 161,327
============= =============
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See Notes to Condensed Financial Statements
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1. BASIS OF PREPARATION:
The condensed consolidated financial statements of Texas Equipment
Corporation (the "Company" or "TEC"), a Nevada corporation, include wholly-owned
subsidiaries Texas Equipment Co., Inc., ("TECI") and New Mexico Implement
Company, Inc. ("NMIC").
The condensed balance sheets as of March 31, 2000 and December 31, 1999
and the condensed statements of operation for the three months ended March 31,
2000 and 1999 and condensed statements of cash flows for the three months ended
March 31, 2000 and 1999 are unaudited and reflect all adjustments (consisting
only of normal recurring adjustments) which are, in the opinion of management,
necessary for a fair presentation of the financial position and operating
results for the interim periods. The condensed consolidated financial statements
should be read in conjunction with the audited consolidated financial statements
and notes thereto contained in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1999. The results of operations for the three
months ended March 31, 2000 are not necessarily indicative of the results to be
expected for the full year.
Certain reclassifications have been made in the condensed consolidated
balance sheet, statements of operations and statements of cash flows for 1999 to
be in conformity with 2000.
2. INVENTORIES:
All inventories are valued at the lower of cost or market. Cost is
determined using the specific identification method for new and used equipment
and average cost for parts.
Inventories consisted of the following at:
March 31, December 31,
2000 1999
----------- -----------
New equipment $ 8,543,928 $10,349,224
Used equipment 12,471,085 12,377,229
Parts and other 4,532,115 4,520,626
----------- -----------
Total $25,547,128 $27,247,079
=========== ===========
3. SEGMENT INFORMATION
DESCRIPTION OF THE TYPES OF PRODUCTS AND SERVICES FROM WHICH EACH REPORTABLE
SEGMENT DERIVES ITS REVENUES
The Company has two reportable segments: wholegoods and product
support. Distribution of these products and services are made directly to
customers through eight Deere dealerships located in West Texas, Texas Panhandle
and Eastern New Mexico. Wholegoods represents agricultural equipment that can be
sold either as an individual item or as part of a series of machines to perform
certain farming operations. Product support represents replacement parts for
equipment and the service of the agricultural equipment on-site or at the dealer
location.
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3. SEGMENT INFORMATION (CONT'D)
MEASUREMENT OF SEGMENT PROFIT OR LOSS AND SEGMENT ASSETS
The Company evaluates performance and allocates resources based on
profit or loss from operations before income taxes. The accounting policies of
the reportable segments are the same as those described in the summary of
significant accounting policies. Inter-segment sales and profits are
insignificant.
FACTORS MANAGEMENT USED TO IDENTIFY THE COMPANY'S REPORTABLE SEGMENTS
The Company's reportable segments are business units that offer
different products or services. The reportable segments (although related) are
each managed separately because they each distribute distinct products and
services in the initial and after-market environment.
Product
Wholegoods Support
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THREE MONTHS ENDED MARCH 31, 2000
Sales and revenues from external customers $ 14,594,036 $ 3,021,500
Depreciation expense 38,736 93,047
Segment operating profit 369,684 19,071
Segment assets:
Property, plant and equipment 933,416 4,450,404
Inventory 21,015,013 4,532,115
THREE MONTHS ENDED MARCH 31, 1999
Sales and revenues from external customers 14,283,603 2,828,720
Depreciation expense 37,869 91,866
Segment operating profit 617,359 88,229
Segment assets:
Property, plant and equipment 965,527 4,603,508
Inventory 31,011,687 4,976,971
OPERATING PROFIT Three Months Ended March 31,
2000 1999
-------------- --------------
Total profit for reportable segments $ 388,755 $ 705,588
Unallocated amounts:
Administrative expense (356,338) (413,402)
Other income 15,013 6,256
Interest expense (254,980) (179,150)
Interest income 59,641 82,179
Non-cash guarantee fee (20,000) (16,756)
-------------- --------------
Total consolidated income before taxes $ (167,909) $ 184,715
============== ==============
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4. NET INCOME PER SHARE
The following summarizes the computation of weighted average shares
outstanding and the net income (loss) from operations per share for the three
months ended March 31:
2000 1999
----------- -----------
Net (loss) income from continuing operations
available to common shareholders ................... $ (110,839) $ 119,610
Weighted average number of common shares
outstanding - basic ................................ 3,607,311 3,512,274
Dilutive effect of convertible debt and options ....... -- 31,220
Common and potential common shares outstanding
diluted ............................................ 3,607,311 3,543,494
Basic and dilutive net (loss) income from continuing
operations per share ............................... $ (0.03) $ 0.03
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION.
As a specialty retailer, the Company distributes, sells, services and
rents equipment for the agricultural industry. The Company's primary supplier of
new equipment and parts is Deere & Company ("Deere"). The Company operates the
largest network of Deere agricultural equipment dealers in Texas and is one of
the largest in the United States. The Company's stores are located in the
Northern and Southern Panhandle of West Texas and in Eastern New Mexico.
The Company generates its revenues from sales of new and used equipment
("wholegoods"), sales of parts and service, and the rental of equipment. The
Company's highest gross margins have historically been generated from its parts
and service revenues. Because of the differences in gross margins between
wholegoods sales and parts and service revenues, total gross profit percentages
(gross profit as a percentage of total sales) will fluctuate with the change in
the mix of revenues from these product lines.
Typically, farmers purchase agricultural equipment immediately prior to
planting or harvesting crops. Because of the location of the Company's dealer
network, there is an overlap in the growing seasons, which have the effect of
leveling out quarterly sales and inventory requirements. In 1999, the Company
recorded approximately 26% of its sales in each of the first and third quarters
and approximately 24% in each of the second and fourth quarters. The Company
believes that there will not be a substantial change in seasonality in 2000.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
REVENUES
Revenues increased approximately $503,000 or 2.9%, to $17,615,551 for
the first quarter of 2000 from $17,112,323 for the first quarter of 1999.
Wholegoods sales increased approximately $310,000 or 2%, to $14,594,051 for the
first quarter of 2000 from $14,283,603 for the first quarter of 1999. An
increase in new tractor and harvest equipment sales was primarily responsible
for the increase in new equipment sales of approximately $1,253,000, or 17%.
This increase in new equipment sales was offset by a decrease in used equipment
sales of approximately 14%, or $942,000, which was primarily due to the increase
in new equipment sales. Weak commodity prices continue to suppress new and used
equipment sales and this trend is expected to continue throughout fiscal year
2000.
Parts and service revenue increased approximately $193,000, or 7%, to
$3,021,500 for the first quarter of 2000 from $2,828,720 for the first quarter
of 1999. Low commodity prices still have a significant effect on parts and
service revenues. However, government farm aid and slightly better commodity
prices allowed the Company's customers to start their field preparation work
earlier in the first quarter of 2000 than the first quarter of 1999, which
resulted in higher parts sales and service revenues.
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GROSS PROFIT
Gross profit of $2,459,362 for the first quarter of 2000 was nearly the
same as the first quarter of 1999 of $2,455,799. Gross profit as a percentage of
total revenues was also flat at approximately 14% for both quarters. The
Company's highest gross margin is derived from its parts and service revenues.
For these periods the revenue mix between wholegoods sales and parts and service
revenues were approximately the same with wholegoods sales at 83.5% and 82.8% of
total revenues and parts and service revenue at 16.5% and 17.2% of total revenue
in the first quarter of 1999 and 2000, respectively.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSE
Selling, general, and administrative (SG&A) expense increased
approximately $263,000 to $2,426,945 in the first quarter of 2000 from
$2,163,613 for the first quarter of 1999. This increase was primarily the result
of approximately $200,000 of auction expenses incurred by the Company in
connection with its first annual used equipment auction held in January 2000.
The auction was a success in partially decreasing the Company's excess used
equipment inventory. However, used equipment inventory is higher than normal
because of the continued weakness in commodity prices.
SG&A expense as a percentage of total revenues was 13.8% in the first quarter of
2000 compared to 12.6% in the first quarter of 1999. This increase in percentage
was primarily the result of higher operating expenses as explained above.
INTEREST EXPENSE/INCOME
Interest expense increased approximately $76,000 to $254,980 for the
first quarter of 2000 from $179,150 for the first quarter of 1999. The increase
was due primarily to increased bank financing to support higher levels of
Company owned inventory and to meet working capital requirements.
Interest income decreased approximately $23,000 to $59,641 for the
first quarter of 2000 from $82,179 for the first quarter of 1999. Interest
income was earned in connection with the financing of customer purchases. The
amount the Company will earn depends on the interest rates charged by
competitors, lending policies of Deere Credit and Agricredit and prevailing
market conditions. Interest rates continue to remain competitive; however,
because of the continued weakness in equipment demand, the Company and Deere
provided more discounted interest rates in the first quarter of 2000 compared to
the first quarter of 1999, which lowered the amount of interest income earned by
the Company.
NON-CASH GUARANTEE FEE
In connection with the personal guarantee by the majority shareholders
of the Company of approximately $21,629,000 monthly average of accounts payable
on wholegoods financing and the credit facility with the Company's bank, the
Company issued fully vested five-year common stock options to acquire up to
92,696 shares of the Company's Common Stock at an exercise price of $3.50. This
resulted in a non-cash charge of $20,000 for the three-month period.
NET (LOSS) INCOME
Net income decreased approximately $230,000 to a net loss of $110,839
for the first quarter of 2000 from net profit of $119,610 for the first quarter
of 1999. This decrease was primarily the result of the decrease in operating
income of approximately $259,000, the increase in interest expense of $76,000
and
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the increase in other expenses of $17,000, which was offset by the decrease in
the provision for income taxes of approximately $122,000.
Earnings per share decreased to a loss per share of $0.03 (both basic
and diluted) for the first quarter of 2000 from earnings per share of $0.3 (both
basic and diluted) for the first quarter of 1999, primarily as the result of the
reasons described above.
LIQUIDITY AND CAPITAL RESOURCES
The Company requires cash primarily for financing its inventories of
wholegoods and replacement parts, acquisitions of additional dealerships and
capital expenditures. Historically, the Company has met these liquidity
requirements primarily through cash flow generated from operations, floor plan
financing, and borrowings under credit agreements with Deere, Deere Credit,
Agricredit Acceptance Company ("Agricredit"), Equipment Dealers Credit Company
("EDCO") and Transamerica Distributor Financing ("Transamerica") and commercial
banks. Floor plan financing from Deere and Deere Credit represents the primary
source of financing for wholegoods inventories, particularly for equipment
supplied by Deere. All lenders receive a security interest in the inventory
financed. Deere and Deere Credit offer floor plan financing to Deere dealers for
extended periods and with varying interest-free periods, depending on the type
of equipment, and to encourage the purchase of wholegoods by dealers in advance
of seasonal retail demand. Down payments are not required and interest may not
be charged for a portion of the period for which inventories are financed.
Variable market rates of interest, based on the prime rate, are charged on
balances outstanding following any interest-free periods, which range from four
to twelve months. Deere also provides financing to dealers on used equipment
accepted in trade and approved equipment from other manufacturers. Agricredit
provides financing for new and used equipment using variable market rates of
interest based on defined prime rate.
The Company annually reviews the terms of its financing arrangements and
interest rates with its lenders. As of March 31, 2000 the interest rate charged
by Deere for its floor plan financing and wholesale line of credit was a defined
prime rate plus 150 basis points and defined prime rate plus 75 basis points,
respectively. In addition, the Company's wholesale credit lines with Agricredit,
EDCO and Transamerica are at rates that range from a defined prime rate plus 50
basis points to defined prime rate plus 150 basis points. As of March 31, 2000
the Company had floor plan payables outstanding of approximately $15,675,000, of
which approximately $7,141,000 was then interest bearing.
On July 2, 1999 the Company received a $4,930,000 long-term loan at a
defined prime rate plus 150 basis points from a lender. The loan is
collateralized by substantially all of the Company's land, buildings, equipment
and furniture and fixtures. The proceeds were used to refinance $3,843,740 of
existing debt, provided $840,400 in working capital and $245,860 in loan fees.
In addition to this loan, the lender provides the Company with two lines of
credit for a total of $2,500,000 at a defined prime rate plus 50 basis points,
collateralized by trade accounts receivable, Company owned equipment inventory
and substantially all of the Company's land, buildings, service equipment and
furniture and fixtures.
Cash and cash equivalents decreased to $171,400 at March 31, 2000 from
$307,509 at December 31, 1999. During the three months ended March 31, 2000,
operations used net cash of $428,128 primarily because of the decrease in floor
plan payables of approximately $1,951,000, an increase in accounts receivable of
approximately $278,000, offset by a decrease in inventory of approximately
$1,699,000. The decrease in inventory was primarily due to the decrease in new
equipment purchases. Investing activities used cash of $163,685 primarily for
capital expenditures. The Company's capital expenditures are expected to
increase as it implements its business plan to acquire additional Deere
dealerships. All acquisitions are
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subject to the availability of debt or equity financing and Deere approval, of
which there can be no assurance in either case. Failure to obtain debt or equity
financing would significantly curtail the Company's business expansion and
development plans.
SEASONALITY
Typically, farmers purchase agricultural equipment immediately prior to
planting or harvesting crops. Because of the location of the Company's dealer
network, there is an overlap in the growing seasons, which have the effect of
leveling out quarterly sales and inventory requirements. In 1999, the Company
recorded approximately 26% of its sales in each of the first and third quarters
and approximately 24% in each of the second and fourth quarters. The Company
believes that there will not be a substantial change in seasonality in 2000.
However, if the Company acquires operations in geographical areas other than
where it currently has operations, it may be affected by other seasonal or
equipment buying trends.
SAFE HARBOR STATEMENT
This statement is made under the Private Securities Litigation Reform
Act of 1995. The future results of the Company, including results related to
forward-looking statements in this report, involve a number of risks and
uncertainties. Important factors that will affect future results of the Company,
including factors that could cause actual results to differ materially from
those indicated by forward-looking statements, include, but may not be limited
to, those set forth under the caption "Certain Important Factors" in Item 7 of
the Company's Form 10-K dated April 14, 2000, filed with the Securities and
Exchange Commission. These factors, which are subject to change, include:
general economic conditions worldwide and locally; interest rates; fuel prices;
the many interrelated factors that affect farmers' confidence, including farm
cash income, farmer debt levels, worldwide demand for agricultural products,
world grain stocks, commodity prices, weather, animal and plant diseases, crop
pests, harvest yields, and government farm programs; legislation relating to
agriculture; climatic phenomena such as La Nina and El Nino; pricing, product
initiatives and other actions of competitors in the agricultural industry,
including manufacturers and retailers; the level of new and used inventories;
the Company's relationships with its suppliers; production difficulties,
including capacity and supply constraints experienced by the Company's
suppliers; practices by the Company's suppliers; changes in governmental
regulations; employee relations; dependence upon the Company's suppliers;
termination rights and other provisions which the Company's suppliers have under
dealer and other agreements; risks associated with growth, expansion and
acquisitions; the positions of the Company's suppliers and other manufacturers
with respect to publicly-traded dealers, dealer consolidation and specific
acquisition opportunities; the Company's acquisition strategies and the
integration and successful operation of acquisitions; capital needs and capital
market conditions; operating and financial systems to manage rapidly growing
operations; dependence upon key personnel; accounting standards; and other risks
and uncertainties. The Company's forward-looking statements are based upon
assumptions relating to these factors. These assumptions are sometimes based
upon estimates, data, communications and other information from suppliers,
government agencies and other sources which are often revised. The Company makes
no commitment to revise forward-looking statements, or to disclose subsequent
facts, events or circumstances that may bear upon forward-looking statements.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
At March 31, 2000, approximately 92.6% of the Company's debt obligations
(including short and long-term equipment and bank financing) had variable
interest rates. Accordingly, the Company's net income and after tax cash flow
are affected by changes in interest rates. Assuming the current level of
borrowings at variable rates and assuming a one percentage point increase in the
average interest rate under these borrowings during the three months ended March
31, 2000 (which average rate was approximately 10%), it is estimated that the
Company's interest expense for the three months ended March 31, 2000 would have
increased by approximately $25,000 resulting in an increase in the Company's net
loss and a decrease in after tax cash flow of approximately $16,000. In the
event of an adverse change in interest rates, management would likely take
actions to mitigate its exposure. Because of the uncertainty of the actions that
would be taken and their possible effects, this analysis assumes no such
actions. Further this analysis does not consider the effects of the change in
the level of overall economic activity that could exist in such an environment.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On May 2, 2000 the Company and its Chairman, Paul Condit, as well as certain
other members of the Condit family who are principal shareholders of the
Company, filed a lawsuit in Texas state district court in Gaines County, Texas
against Service Invest AS, a Norwegian shareholder, and certain other affiliated
shareholders seeking a declaratory judgment related to disputes that have arisen
between the parties (Texas Equipment Corporation, Texas Equipment Co., Inc.,
Paul Condit et al v. Service Invest AS, et al, Case No. 00-05-14040, 106th State
District Court, Gains County, Texas). The defendant shareholders made their
principal investments in the Company (then named Marinex Multimedia) in
Regulation S offerings in early 1996 before the Company engaged in the September
1996 business combination with Texas Equipment Co. Inc. Texas Equipment Co. Inc.
was, prior to the business combination, wholly-owned by members of the Condit
family and its John Deere agricultural equipment dealerships have since 1997
represented the Company's only business activities. The defendant shareholders,
in discussions with the Company and the Condits in recent months, have contended
that certain provisions of the September 1996 business combination agreement
require surrender by the Condits of a portion of the shares of the Company they
acquired in the business combination. In addition, they contend that guarantee
fees paid by the Company to the Condits in the form of stock options for the
past several years in consideration of the personal guarantees by the Condits of
the Company's indebtedness to John Deere and the Company's bank are not
warranted. The Company and the Condits have vigorously disputed such
contentions, noting that the defendants' position as to their first claim
ignores a provision in the business combination agreement that expressly negates
any requirement for a return of shares by the Condits and, as to the second
claim, noting that the guarantee fee arrangement represents fair and customary
non-cash consideration for substantial personal guarantees required by the
Company's creditors which confer a substantial benefit upon the Company and,
indirectly, all of its non-guarantor shareholders. As to the first claim, the
auditor provided for by the business combination agreement also provided a
report and analysis supporting the position of the Company and the Condits and
concluding that no return of shares was required. The Company does not expect
the litigation to have a material adverse effect upon its operations or
financial condition.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
27 Financial Data Schedule
99.1 Petition for Declaratory Judgement
(b) Reports on form 8-K
None
17
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: May 12, 2000
TEXAS EQUIPMENT CORPORATION
By: /s/ Paul J. Condit
-------------------------------------
Paul J. Condit
President and Chief Executive Officer
18
19
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
27 Financial Data Schedule
99.1 Petition for Declaratory Judgement